Bagged 026 005 021 Applesauce 065 040 025 Identify Alternatives Define Problem

Bagged 026 005 021 applesauce 065 040 025 identify

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strategic positioning desired by producer. Bagged $0.26 0.05 $0.21 Applesauce $0.65 0.40 $0.25 Identify Alternatives Define Problem Predict Costs Compare Costs Assess Qualitative Factors Step 6 Select Alternative 822 Chapter 17 Activity Resource Usage Model and Tactical Decision Making
Other qualitative factors are also important. For example, the spike in gasoline prices in 2008 2009 led to renewed interest in hybrid vehicles. While Toyota ’s Prius, Nissan ’s Altima, and Chevrolet ’s two-mode Tahoe SUV had payback periods shorter than five years, the payback on many of these vehicles is quite long. Some take over 10 years to pay back the difference in cost between a hybrid version and nonhybrid version of a vehicle, and a few take close to 100 years! 2 Given the fact that the economics are frequently stacked against buying the hybrid version, why do so many people opt for it? Qualitative reasons are often the answer. Individuals like the idea of reducing their carbon footprint and ‘‘going green.’’ There is satisfaction in doing something good for the envi- ronment. Bradley Berman, editor of Hybridcars.com , mentions the ‘‘tech appeal’’ of the hybrid vehicles. ‘‘Hybrids definitely appeal to people who are into ‘fun technology’,’’ he says. ‘‘If you were one of the folks who went out and got an iPod or iPhone as soon as they came out, and if you use a TiVO instead of a VCR, then you’ll probably like the fact that today’s hybrids are the most advanced vehicles out there today in terms of electronics.’’ 3 How should qualitative factors be handled in the decision-making process? First of all, they must be identified. Secondly, the decision maker should try to quantify them. Often, qualitative factors are simply more difficult to quantify, but not impossi- ble. For example, possible unreliability of an outside supplier might be quantified as the probable number of days late multiplied by the labor cost of downtime in the plant. Finally, truly qualitative factors, such as the impact of late orders on customer relations, or the apple producer’s discomfort with the canning option, must be taken into consideration in the final step of the decision-making model the selection of the alternative with the greatest overall benefit. Relevant Costs and Revenues In choosing between two alternatives, only the costs and revenues relevant to the de- cision should be considered. Identifying and comparing relevant costs and revenues is the heart of the tactical decision model illustrated in Exhibit 17-1. Relevant costs (revenues) are future costs (revenues) that differ across alternatives. Since relevant revenues are treated in the same way as relevant costs, we will simplify the discussion by concentrating on costs. All decisions relate to the future; accordingly, only future costs can be relevant. In addition, the cost also must differ from one alternative to another. If a future cost is the same for more than one alternative, it has no effect on the decision. Such a cost is an irrelevant cost. The ability to identify relevant and irrelevant costs is an important decision-making skill.

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